Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Tara McCallum and Emille Boulot

Transcription

1 CRC for Water Sensitive Cities 1 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Tara McCallum and Emille Boulot

2 2 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Milestone Report Better Regulatory Frameworks for Water Sensitive Cities (Project A3.2) A Authors Tara McCallum and Emille Boulot Faculty of Law, Monash University The Better Regulatory Frameworks for Water Sensitive Cities Project Team comprises: Professor Graeme Hodge, Professor Pamela O'Connor, Emeritus Professor Arie Freiberg, Associate Professor Alex Gardner, Dr Ruth Lane, Dr Colin Campbell, Dr Edwyna Harris, Dariel De Sousa, Tara McCallum, and Emille Boulot. Professor Brian Head also leads the Governance and Regulation project overall. The assistance of the various team members in the development of ideas contributing to this report, with interviews and in the finalisation of this report is acknowledged Cooperative Research Centre for Water Sensitive Cities This work is copyright. Apart from any use permitted under the Copyright Act 1968, no part of it may be reproduced by any process without written permission from the publisher. Requests and inquiries concerning reproduction rights should be directed to the publisher. ISBN: Publisher Cooperative Research Centre for Water Sensitive Cities 8 Scenic Blvd, Level 1, Clayton Campus Monash University Clayton, VIC 3800 p e. admin@crcwsc.org.au w. Date of publication: August 2015 An appropriate citation for this document is: McCallum, T. and Boulot, E. (2015), Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia. Melbourne, Australia: Cooperative Research Centre for Water Sensitive Cities. ISBN:

3 CRC for Water Sensitive Cities 3 Executive Summary About the report Existing urban water management practices have been generally successful in delivering services to Australian communities. However, pressures arising from climate change, urban population growth and increasing urban densification are driving calls to reform the urban water sector to help make our cities more sustainable, resilient, productive and liveable. Such reform would require adopting innovative technology and new management practices. Yet, current regulatory frameworks have been identified as key impediments to making these changes. Our earlier work involved conducting stocktakes of the existing primary legislation related to urban water across three Australian jurisdictions. We also employed the technique of regulatory space mapping to better conceptualise and understand urban water regulation in Melbourne, Victoria. Building on this previous work, the report is a comparative review of the urban water regulatory space in the three Australian metropolitan areas of Melbourne, Perth and Brisbane. The appendices to the report contain the detail of this mapping exercise. The report focuses on the uptake of innovative service delivery options, which we term water sensitive service delivery. These options are likely to involve the exploitation of new water sources and promise to provide multi-functional benefits. The report has dual aims. Firstly, to identify the extent to which regulation in Australia may be acting as an enabler to these options, so that this role may be more widely encouraged and adopted. Secondly, to identify where regulation may be acting as an impediment to innovation, to enable innovation to flourish through the removal of such impediments. In Sections 1 7 we investigate how the regulatory space in the three cities impacts on innovation. This space is complex and consists of many webs of regulatory controls seeking to meet multiple, and potentially competing, policy objectives in areas as diverse as public health, environmental protection, water security, urban amenity and consumer protection. Section 8 synthesises our key observations about how the regulatory frameworks in the three cities enable, or impede, water sensitive service delivery into a series of conclusions. Our conclusions attempt to move beyond acknowledging the complexity of the urban water regulatory space towards an understanding of the opportunities presented within this complexity to promote and encourage water sensitive service delivery. Drawing on these conclusions, Section 9 recommends how the regulatory frameworks across the three cities may be better configured to enable water sensitive cities to develop. Section 9 also identifies questions that would benefit from further research. Many of our recommendations will be ones other cities, both within and outside of Australia, could also usefully pursue. However, the report does not seek to identify one specific regulatory regime for implementation. Urban water problems and solutions are location-specific and each city also has its own unique regulatory and institutional environment. Implementation must take place within the unique legislative and institutional context of each city. Moreover, water services are ones in which the Australian public places much trust. Existing institutional models and regulatory frameworks have played a vital role in securing this trust and these models and frameworks should be reconfigured only with great care so that this trust is maintained. Key observations and recommendations Reconfigure those parts of our regulatory frameworks impeding the emergence of water sensitive service delivery In all three cities the current regulatory frameworks, supply options and institutional arrangements have been shaped in response to a conventional model of urban water management and service delivery. Yet these very frameworks and institutional arrangements may now be impeding innovation. For example, our institutional arrangements are not integrated across the water cycle. Nor do our legal definitions of water and the mechanisms we employ to allocate and protect water resources fully capture the variety of potential water sources available for exploitation. Also, our current frameworks may impede, and certainly do not encourage, greater diversity in water service providers. As problematic as restrictive regulation are those gaps within existing regulatory frameworks which make

4 4 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia discerning the allocation of legal risk under the background law extremely costly and time consuming. Enabling regulation can provide certainty and lower transaction costs. Enabling regulation may also allow the risks of the new practice to be specifically allocated, and potentially shared, in more desirable ways. We recommend the development of statutory definitions and allocation mechanisms for all sources of water, clear and consistent regulatory requirements and approvals processes for alternative water source projects, statutory licensing for service providers and third party access regimes. Strengthen the enabling environment for innovation by providing economic incentives in the regulatory space In markets, price is the driver of much innovation. Yet, across the three cities, pricing does not reflect the true cost of water. It follows logically that the continued under-pricing of water provides only weak incentives for innovation in the urban water sector. In contrast, the provision of direct grant funding by governments has been shown to be a powerful regulatory incentive to innovate. We have also observed that regulatory tools targeted at the built environment that put a price on the externalities of urban development, such as Clause 56.7 of the Victorian Planning Provisions, have had demonstrable success in encouraging innovation in water sensitive service delivery. These tools provide a strong economic incentive to innovate and may encourage new markets to develop, for example in recycled water and in water efficient products. As the economic incentive to innovate in urban water service provision is currently very weak we recommend governments continue to provide explicit grants to encourage innovation. We also recommend that governments explore the economics of the enabling environment for innovation. Better understand the role of our water institutions in innovation We observed that institutional arrangements are important for innovation and that there is high public, and regulatory, trust in drinking water service provision by the existing public water corporations. Further, while the institutional arrangements for urban water management, planning and service delivery differ across the three cities in all cases the governance arrangements are extremely complex. This complexity is likely to pose co-ordination challenges to achieving more integrated and adaptable solutions. Yet, much is still to be learnt about whether any particular arrangement is preferable for service delivery innovation. However, we have observed that the effectiveness, or otherwise, of the institutional arrangements for stormwater management in a city impacts on the uptake of water sensitive service delivery projects. We recommend increasing our understanding of the role played by our water institutions in innovation. As a first step, we recommend Brisbane and Perth clarify the institutional responsibility for waterways health and stormwater management. Develop better models for combining political and professional decision making in urban water Across all three cities decisions about investment in water infrastructure, consumer pricing and which resources are suitable for exploitation are subject to significant political control. We also observed that the potential to use alternative sources in potable supplies was often impeded by unclear statutory definitions around water sources and State Government policies on acceptable sources of drinking water. We recommend better combining political and technical/professional decision making. We also recommend clarifying, and potentially changing, State Government policies on acceptable sources of drinking water.

5 CRC for Water Sensitive Cities 5 Table of Contents Executive Summary 3 Table of Contents 5 Tables of Boxes, Diagrams and Tables 6 Abbreviations 7 Section 1 - Introduction 11 Section 2 - The Australian Model of Urban Water 18 Section 3 - A Comparative Review of Water Resource Regulation 27 Section 4 - A Comparative Review of Service Delivery and Price Regulation 33 Section 5 - A Comparative Review of Built Environment Regulation 41 Section 6 - A Comparative Review of Environmental Regulation 50 Section 7 - A Comparative Review of Public Health Regulation 58 Section 8 - Conclusions 65 Section 9 - Recommendations 73 Appendix A - National and International Urban Water Regulatory Frameworks 76 Appendix B - Brisbane s Urban Water Regulatory Frameworks 81 Appendix C - Perth s Urban Water Regulatory Frameworks 99 Appendix D - Melbourne s Urban Water Regulatory Frameworks 115 References 131

6 6 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Table of Boxes Box 1.1 Research findings on regulatory impediments to urban water innovation 13 Box 1.2 Regulation as an enabler of innovation 14 Box 1.3 Mapping Melbourne s urban water regulatory space 15 Box 2.1 Consequences of the economic conception of water 19 Box 3.1 Stormwater and the urban water catchment in South Australia 29 Box 3.2 A novel property right for MAR? 30 Box 4.1 WICA and the development of a private water industry in New South Wales 35 Box 5.1 Fitzgibbon Chase and building level regulatory requirements as a facilitator 48 of innovation Box 5.2 BASIX and water use efficiency 49 Box 6.1 Regulatory gaps regarding stormwater reuse and the Kalkallo Project 54 Box 6.2 Fitzgibbon Chase and difficulties with Queensland s regulation of stormwater 55 and rainwater Table of Figures Figure 4.1 Entities responsible for water infrastructure investment decisions in each city 37 Figure 4.2 Models of price regulation across the three cities 38 Table of Tables Table 2.1 Significant features and challenges affecting urban water across the three cities 20 Table 2.2 Institutions responsible for urban water service delivery across the three cities 22 Table 2.3 Annual stormwater run-off falling on the three cities 25 Table 3.1 Entities responsible for urban water management across the three cities 28 Table 5.1 Entities responsible for each of the elements of built environment regulation 44 in each city Table 5.2 Entities responsible for providing water service infrastructure in greenfield 47 areas Table 7.1 Comparison of drinking water suppliers and regulators across the three cities 60 Table 7.2 Comparison of drinking water regulation across the three cities 61

7 CRC for Water Sensitive Cities 7 Abbreviations Abbreviation ADWG AGWR BCA BPEM Guidelines Building Act Building Regs CCA CLPA CoAG CRCWSC CSIRO CWW DEHP DELWP DER DEWS DHHS DHPW DoH DoW DNRM DSDIP DWQMP EDQ Full reference Australian Drinking Water Guidelines Australian Guidelines for Water Recycling Building Code of Australia Best Practice Environmental Management Guidelines Building Act 1993 (Vic); Building Act 2011 (WA) Building Regulations 2006 (Vic) Competition and Consumer Act 2010 (Cth) Catchment and Land Protection Act 1994 (Vic) Council of Australian Governments Cooperative Research Centre for Water Sensitive Cities Commonwealth Scientific and Industrial Research Organisation City West Water Department of Environment and Heritage Protection (QLD) Department of Environment, Land, Water and Planning (VIC) Department of Environmental Regulation (WA) Department of Energy and Water Supply (QLD) Department of Health and Human Services (VIC) Department of Housing and Public Works (QLD) Department of Health (WA) Department of Water (WA) Department of Natural Resources and Mines (QLD) Department of State Development, Infrastructure and Planning (QLD) Drinking water quality management plan Economic Development Queensland

8 8 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia EPA Environment Protection Authority (VIC) Environmental Protection Authority (WA) Environment Protection Act EP Act Environment Protection Act 1970 (Vic) Environmental Protection Act 1986 (WA) Environmental Protection Act 1994 (Qld) EPBC Act EPP Environment Protection and Biodiversity Conservation Act 1999 (Cth) Environmental Protection Policy (WA) EPP (Water) Environmental Protection (Water) Policy 2009 ESC ESC Act ERA EV EWOQ EWOV EWR HEMP IPART IWCM IWSS Kalkallo Project MAR Monitoring Guidelines MOU NCC NRM NRMG NWI NWQMS Essential Services Commission (VIC) Essential Services Commission Act 2001 (Vic) Economic Regulation Authority (WA) Environmental Value Energy and Water Ombudsman (QLD) Energy and Water Ombudsman Victoria Environmental Water Reserve (Vic) Health and Environment Management Plan Independent Pricing and Regulatory Tribunal Integrated Water Cycle Management Integrated Water Supply Scheme Kalkallo stormwater harvesting and reuse project Managed Aquifer Recharge Australian Guidelines on Water Quality Monitoring and Reporting Memorandum of Understanding National Construction Code Natural resource management Natural resource management group National Water Initiative National Water Quality Management Strategy

9 CRC for Water Sensitive Cities 9 OEPA OLV P&E Act PHA Plumbing Regs PPWCMA QCA QH QUU QWQG RiWI Act ROP RWQMP SDWA SEP SEPPs SEPP (GoV) SEPP (Wov) SEQ SEQ Code SEQ NRM Plan Office of the Environmental Protection Authority (WA) Office of Living Victoria (Vic) Planning And Environment Act 1987 (Vic) Public Health Act 2005 (Qld) Plumbing Regulations 2005 (Vic) Port Phillip and Westernport Catchment Management Authority Queensland Competition Authority Queensland Health Queensland Urban Utilities Queensland Water Quality Guidelines Rights in Water and Irrigation Act 1914 (WA) Resource Operation Plan (QLD) Recycled Water Quality Management Plan Safe Drinking Water Act 2003 (Vic) State Environmental Policy (WA) State Environment Protection Policies State Environment Protection Policy (Groundwaters of Victoria) State Environment Protection Policy (Waters of Victoria) South East Queensland South East Queensland Water Supply and Sewerage Design and Construction Code South East Queensland Natural Resource Management Plan SEQ Regional Plan South East Queensland Regional Plan SEW SoO SPA SPP South East Water Statement of Obligations (VIC) Sustainable Planning Act 2009 (Qld) State Planning Policy (WA & QLD)

10 10 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia SPRP VPPs WAPC Water Act State Planning Regulatory Provision (QLD) Victorian Planning Provisions (VIC) Western Australian Planning Commission (WA) Water Act 1989 (Vic) Water Act 2000 (Qld) Water Bill Water Quality Guidelines Water Restructuring Act 2007 Water Restructuring Act 2009 Water Supply Act WELS WHO WI Act WICA The Water Bill Exposure Draft released by the Victorian Government in December Guidelines for Fresh and Marine Water Quality South East Queensland Water (Restructuring) Act 2007 (Qld) South East Queensland Water (Distribution and Retail Restructuring) Act 2009 (Qld) Water Supply (Safety and Reliability) Act 2008 (Qld) Water Efficiency Labelling Scheme World Health Organisation Water Industry Act 1994 (Vic) Water Industry Competition Act 2006 (NSW) WIRO Water Industry Regulatory Order 2012 WMP WQG WQO WRP WSA WSC WSUD YVW Waste Management Plan Water quality guideline Water quality objective Water Resource Plan (QLD) Water Services Act 2012 (WA) Water Sensitive City Water Sensitive Urban Design Yarra Valley Water

11 CRC for Water Sensitive Cities 11 Section 1 - Introduction 1.1. The importance of urban water innovation Existing urban water management practices have been successful in delivering the water, sewerage and drainage services that Australian urban communities have demanded. However, the combined impacts of climate change, urban population growth and increasing urban densification are placing significant pressures on Australian hydrological systems and water service delivery mechanisms. These pressures are driving calls to reform the urban water sector and encourage a more ecologically sustainable approach which will ensure the long-term reliability of water supplies (Sharma, Cook et al. 2012). As a result, there is a growing realisation that existing practices may need to change, and become more sustainable, if Australian cities are to continue to benefit from high quality urban water management (Newman 2001, Brown and Keath 2008). Indeed, this is not just an Australian problem. Countries across the developed world face similar challenges in maintaining their current, reliable water supplies (OECD 2015a). Such reform would see our cities become more water sensitive urban environments (Morison and Brown 2011). The term water sensitive city (WSC) is used to describe a future urban area which would be able to confront the complex, and multi-faceted, challenges of growing societal expectations and natural resource limitations (Brown, Keath et al. 2009). A WSC would be a liveable, resilient, sustainable and productive place. Yet, for Australian cities to become WSCs significant changes would be required to current practices. These changes will require adopting innovative technology. However, as importantly, these changes will require the adoption of new urban water management practices and governance arrangements (OECD 2015). The Cooperative Research Centre for Water Sensitive Cities (CRCWSC) is a major collaborative research initiative aimed at revolutionising water management within Australia and overseas. The CRCWSC is focused on producing collaborative, multi-disciplinary research which will be of assistance to its stakeholder partners in industry and government in shifting our cities towards more integrated and sustainable urban water management. Water sensitive innovation covers a broad range of technologies and approaches. These include Water Sensitive Urban Design (WSUD) approaches, which are focused primarily on the built environment, integrated water cycle management (IWCM) and the use of water from non-traditional, or alternative, sources. Non-technical innovations, such as new approaches to planning, are as important technological innovations, such a membrane technologies and smart meters (OECD 2015). Indeed, the two are often combined. We consider that a WSC would address three functional problems that are not adequately dealt with by current urban water management practices and regulatory responses. Firstly, a WSC will ensure that water is used in efficient and multi-functional ways. An example of such multi-functionality would be passive stormwater capture technologies which simultaneously provide drainage, public amenity and environmental benefits. The amenity and environmental benefits include preventing the degradation of urban waterways, from pollution and excess water flows. The amenity and environmental benefits also include the provision of water to irrigate street trees which in turn lowers city temperatures and to increases air quality. Secondly, a WSC would exploit new, alternative sources of water, for example, by using water recycled from sewage. Thirdly, a WSC would ensure that waterways and wetlands are healthy, for example, by protecting the quality and quantity of water in urban waterways. The report looks at enablers and impediments to the uptake of innovative water service delivery options. We have termed this water sensitive service delivery. Water sensitive service delivery tends to be aimed at solving the first two functional problems by using alternative water sources, such as stormwater and recycled wastewater, to offer multi-functional benefits, such as water provision and environmental protection. While the report does address, in a subsidiary fashion, the protection of wetlands and waterways a detailed examination of these extensive issues is outside of the scope of the report.

12 12 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia 1.2 The role of regulation in water sensitive service delivery It has been argued that current institutional, political and legislative frameworks support conventional models of water service provision (Sharma, Cook et al. 2012), it has also been argued that further research is required to develop adequate governance, and better models, for the increased uptake, operation and integration of sustainable water practices (Sharma, Cook et al. 2012). Furthermore, extensive consultation with CRCWSC participants and stakeholders identified a number of key challenges to the necessary urban water reforms required to transform Australian cities into WSCs. These challenges included current regulatory and risk allocation frameworks (Brown, Farrelly et al. 2009, Brown, Keath et al. 2009, Farrelly and Brown 2011). The Better Regulatory Frameworks for Water Sensitive Cities (Project A3.2) was created to respond to these research needs. The project aims to help create an enabling environment for water sensitive service delivery innovations, by identifying those elements in regulatory frameworks which may support and enable such innovation, and those which may hinder and impede innovation. Regulation can be conceived of in contrasting ways (Harlow and Rawlings 2009). One perspective considers regulation as a red light and as a blocker to acting in more innovative ways. There is an extensive international literature on the potential regulatory impediments to water sensitive innovation, see Box 1.1. The contrasting perspective considers the ways in which regulation can act as a green light and facilitate innovation. This role, however, is less well appreciated (see Box 1.2). Our previous research has shown that regulation may act variously both as an enabler and as an impediment to innovation in the Australian urban water sector (McCallum 2015). This report has dual aims. Firstly, to identify the extent to which regulation in Australia may be acting as an enabler to water sensitive service delivery innovation, so that this role may be more widely encouraged and adopted. Secondly, this report also importantly identifies where regulation may be acting as an impediment to innovation, to enable innovation to flourish through the removal of such impediments.

13 CRC for Water Sensitive Cities 13 Box 1.1 Research findings on regulatory impediments to urban water innovation Regulation has often been identified as an impediment to the uptake of innovative practices in urban water. For example, the OECD (2015) observes that while innovative urban water technologies are readily available, there are barriers to their diffusion across member countries involving regulation. Mukheirbir, Howe et al. (2014) identified regulation as an institutional challenge to the uptake of innovative, and sustainable, urban water management. Mukheirbir, Kuruppu et al. (2013) observed challenges at the local government level resulting from legal fragmentation and a complex regulatory environment. Watson (2011) found that the complexity of regulation made investment in distributed recycled systems expensive, uncertain, prolonged and difficult to pursue. In particular, there is a significant literature that considers regulation to be a crucial challenge to the adoption of WSUD (Lloyd 2001, Brown and Farelly 2007). Complex and uncertain regulatory environments were also a key theme in the literature review of Brown and Farrelly (2007) on barriers to sustainable urban water management. In particular, these presented as inconsistent regulatory approvals processes, conflicting formal mandates amongst organisations, unclear property rights and operational organisations lacking authority or power. However, regulation affects different water projects in different ways. Brown and Farrelly (2007) found that water practitioners in Western Australia, Victorian and Queensland perceived the adoption of rainwater tanks as only slightly impeded by the regulation and approvals processes while these factors were identified as outright barriers to the implementation of on-site greywater systems. In contrast, the implementation of third-pipe systems in greenfield development areas was perceived to be neither encouraged nor prevented by regulations. It has been suggested that the lack of a legislative mandate is an impediment to the uptake of sustainable water management and WSUD (Roy, Wenger et al. 2008). However, Morison and Brown (2011) caution that an enabling policy or regulatory framework does not necessarily, by itself, guarantee the uptake of WSUD principles. In conclusion, the literature supports the general assertion that there are perceived regulatory barriers to water sensitive innovation. These barriers appear to be largely due to overlapping responsibilities and unclear regulations which in turn create a complex and uncertain regulatory environment. It has been suggested that this uncertainty has created a climate of risk aversion (Tjandraatmadja, Cook et al. 2008) which results in a reluctance to invest in innovative water solutions.

14 14 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Box 1.2 Regulation as an enabler of innovation Regulation can play an important role in enabling innovation and the adoption of new technologies and solutions for urban sustainability and resilience (Van der Heijden 2014). Indeed, as we observed in earlier case study work (McCallum 2015), regulation can act in two quite distinct ways as a facilitator of innovation. Regulation may act indirectly by providing a broad, supportive environment within which experimentaion can be undertaken. For example, a regulatory regime aimed at securing water quality that does not prohibit the use of alternative sources may allow experimentation with such new sources to occur even if these are not specifically encouraged. However, perhaps more significantly, regulation may also act more directly by providing a specific prompt to explore an innovative solution. For example, building regulations might require homeowners to implement water conservation measures when building a new property, a government rebate scheme may encourage the adoption of new technologies by businesses or a statutory approvals regime may signal the social acceptability of the approved new technology. Directly enabling regulation plays an important role in providing certainty and lowering the transaction costs of undertaking the innovative action. This type of regulation also enables the risks of the new practice to be specifically allocated, and potentially shared, in ways that are acceptable to those pursuing the innovation. In the absence of such regulation, discerning the allocation of legal risks under the background law may be extremely costly and time consuming and this uncertainty is likely to operate as a significant disincentive to innovate. Future research of this project will be looking at legal risk allocation in innovative urban water practices and how such risks may be better re-allocated. 1.3 A broad framing of urban water regulation This report adopts a broad conception of regulation as an intentional measure or intervention that seeks to change the behaviour of individuals or groups (Freiberg 2010, p.4). This conception itself builds upon the earlier work of Black (2002) and Selznick (1985). Regulation as a practice focused on behaviour change encompasses both activities undertaken by governments and those undertaken by a wide array of non-governmental actors. It includes interventions by way of formal legal rules but it is wide enough to include interventions by a host of other mechanisms such as codes, guidelines, economic incentives and structural architecture (Freiberg 2010) 1. Using this lens, what becomes important is not the legal form of the action but its influence on behaviour. We apply such a broad conception of regulation because it is important to understand the full range of potential regulatory enablers, or impediments, to WSCs. In our previous work (McCallum 2014), we employed the technique of regulatory space mapping (see Box 1.3) to better conceptualise and understand urban water regulation in Melbourne, Victoria. Building on this earlier analysis, this report also conceives of the Australian urban water regulatory space as being made up of five key regulation systems. 1 Freiberg (2010) uses the terms regulatory tools or regulatory methods to describe the various means by which regulatory outcomes can be produced through the exercise of government power and proposes a taxonomy of these tools to help discussions on government regulation. These modes of regulating include economic tools, transactional regulation, authorisation as regulation, structural regulation, informational regulation and legal regulation. Each category of regulatory tool involves the application of power that is focused on behaviour change yet each does this in a different way. Legal regulation is only one of these six modes although many of the other tools derive their status and powers of enforceability through legal mechanisms. With the exception of legal regulation each of these tools may also be used for regulatory effect by civil society or by business. Several of these regulatory tools involve the use of rules, whether binding legal rules or other standards, procedures and expectations. These rules can serve an important function in society by providing stability and predictability.

15 CRC for Water Sensitive Cities 15 Box 1.3 Mapping Melbourne s urban water regulatory space By adopting a broad conceptualisation of regulation it becomes hard to visualise the regulatory framework surrounding urban water management in a simple linear fashion, as a set of cause and effect relationships solely focused on the actions of government. Rather the regulatory framework is seen to include a web of regulatory tools which originate from a variety of sources, and influence the behaviour of a variety of actors in different ways. Indeed, an issue as complex as urban water management will be impacted upon by a multitude of webs layered over each other in ways that can be mapped in a graphic representation. Regulatory scholars term this concept the regulatory space (Hancher and Moran 1989). Our earlier analysis discerned five key related, but discrete, systems of regulation, or webs, that most significantly impacted on urban water management in Australian cities (McCallum 2014). Each of these systems is aimed at the achievement of a different set of regulatory objectives. These systems can be called: The five key regulation systems were mapped, at a high level of generality, for the city of Melbourne, Victoria. This mapping exercise focused on identifying the underlying philosophy, or logic, of each the system, the prominent actors within the system and the most significant regulatory tools used. The five key regulation systems provided a conceptual framing which allowed us to grasp the complexity of the urban water regulatory space, identify key linkages and distinguish the types of incentives operating on various actors. Our mapping of the Melbourne regulatory space indicated that urban water regulatory regimes are premised upon assumptions about how water is to be used in society, and by whom. These assumptions may not always be explicit. Moreover, these assumptions may not best suit attainment of a WSC. The mapping exercise also identified that Melbourne s current frameworks for service standard and price setting do not contain mechanisms that would enable a wider range of actors to participate in urban water supply. 1.4 A comparative understanding of urban water regulation Our earlier work also involved conducting stock-takes of the existing primary legislation related to urban water across three Australian jurisdictions (De Sousa 2013a, De Sousa 2014a, De Sousa 2014b). Primary legislation enables us to identify the way in which the urban water regulatory space in each jurisdiction is organised into different institutional sectors of government such as public health, planning, water resources. For each sector, primary legislation establishes the key regulatory bodies and outlines the objects, powers, duties, roles and responsibilities of these regulatory bodies and operating water institutions. Primary legislation also establishes co-ordination mechanisms and

16 16 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia provides for which types of subordinate laws, or secondary legislation, can be made. These stocktakes enabled us to identify where particular elements within existing legislation may potentially enable, or hinder, the adoption of water sensitive innovation across Victoria, Queensland and Western Australia. However, the regulatory space is much broader than just primary legislation. This led us to map out the urban water regulatory space in Melbourne which enabled us to identify where this broader regulatory space was enabling, or hindering, the adoption of innovative practices in Melbourne. An even richer understanding of how the institutions, frameworks, strategies and regulatory tools that make up the regulatory space impact on innovation is likely to arise if these elements can be compared across a number of cities. The value of such a comparison is also likely to be greater if these cities represent different models of a city, with contrasting challenges, and opportunities, for water sensitive service delivery innovation and differing regulatory responses in relation to these challenges and opportunities. Accordingly, we undertook a comparative review of the urban water regulatory space in the three Australian metropolitan areas of Melbourne, Perth and Brisbane. Each city represents a different legal jurisdiction. In addition, each city has its own unique history, hydrology and climate and these are reflected in the differing institutional arrangements in place in each city and each city s own unique water management concerns. The appendices to this report contain the detail of this mapping exercise across the cities. While this report is primarily focused on Melbourne, Brisbane and Perth, it is acknowledged that important innovations are also occurring elsewhere in Australia. In particular, there have been significant advances made in New South Wales in relation to the regulation of the private provision of water services, the securing of third party access to water infrastructure and building level sustainability requirements. South Australia has been at the forefront of large scale stormwater capture. Accordingly, this report also considers, where appropriate, comparison with the regulatory frameworks in New South Wales and South Australia About this report The report is a comparative review of the institutional arrangements, the broader regulatory frameworks and strategies, and the specific regulatory tools that comprise the urban water regulatory space across Brisbane, Melbourne and Perth. The aim of the report is to identify the extent to which these elements may be enabling, or hindering, the uptake of water sensitive innovation in these cities. By comparing these elements across the three cities we are also able to make broader observations about how the existing regulatory space may present constraints, challenges or opportunities for those seeking to promote water sensitive innovation in Australia. 2 While seeking to cover a wide breadth of regulatory tools and strategies this report is not intended to be a forensic legal examination of each individual element of the urban water regulatory space across each city. Furthermore, the urban water regulatory space is a dynamic one, and at any time it is likely that particular elements of this will be undergoing a certain level or reconfiguration, or reform. 2 The report was prepared following the detailed regulatory mapping of the institutions, legislative and regulatory provisions, policy and other regulatory tools across each of the five key regulatory systems in the three cities. These were assessed to determine instances where regulation has resulted in, or has the potential to result in, successful water sensitive service delivery innovation. The report also undertakes a comparative evaluation of the broader regulatory and governance mechanisms in each city, to determine impediments and enablers to water sensitive service delivery innovation. This report builds on our earlier work and also draws on government inquiries and academic literature, both on regulatory scholarship and urban water management.

17 CRC for Water Sensitive Cities 17 Section 2 of the report provides some general background about the conventional model of urban water in Australia, the challenges this model faces and potential new models. Section 2 also provides specific information about how water service delivery is currently undertaken in each of the three cities and the nature of the different particular challenges faced by each city. Sections 3 to 7 then consider, and compare, the regulatory frameworks in the three cities, across the five regulatory systems. Each section finishes with some key observations about how these enable or impede water sensitive service delivery. Section 8 synthesises these key observations and draws some conclusions about how our regulatory frameworks enable or impede water sensitive service delivery. Section 9 makes recommendations, based upon these conclusions, about how our regulatory frameworks may be better configured to enable the development of WSCs.

18 18 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Section 2 The Australian Model of Urban Water 2.1 The conventional model of Australian urban water Urban water services traditionally encompass three bundles of related services (Productivity Commission 2011a); water services; 3 sewerage services; 4 and drainage services. 5 In developed nations, the conventional model for urban water service provision involves water being collected, distributed and treated in large infrastructures which are centrally organised at the city level (OECD 2015a). In this model there is a heavy reliance on technology to augment supply and policy is primarily focused on maintaining water quality and supply (OECD 2015a). In this model, urban water services are delivered by corporatised utilities focused on achieving economic efficiency in service delivery. This model is typical in Australian cities and this approach to urban water management is colloquially known as one of big pipes in, big pipes out (Brown and Keath 2008). The conventional model exploits sources of either surface water or groundwater from relatively controlled catchments. This water is then treated to a standard suitable for potable use and this one class of water is supplied, through a reticulated system, to individual users for all their water uses. Once used, it is collected in a sewerage network, treated and discharged as wastewater into a distant environment (Troy 1996). With an increase in demand, this model responds by extracting more from existing sources or harnessing new surface or groundwater sources (Syme 2008). This linear system is undertaken within a framework of expansion and efficiency (Brown and Keath 2008). In this model, providing reliable water supply and sewerage services for the urban environment is considered to be primarily an engineering challenge, which is met by technical experts building large dams, pipelines and treatment plants (Brown, Keath et al. 2009). Alongside this conventional water supply model sat a complimentary model of urban drainage service provision that was primarily focused on ensuring that unwanted stormwater was removed from the urban environment. Traditionally, delivery of these services required both high-level land management, to control the use that flood prone land was put to, and the provision of specific drainage infrastructure at a more localised scale. 6 As stormwater was historically viewed as a nuisance, liable to cause flooding that could damage property and harm people, the traditional objectives of urban drainage service provision were nuisance control, asset protection and harm prevention. This was usually achieved through engineering solutions that would quickly convey the water away to rivers and oceans. Overland flow management was not considered in great detail and flow mitigation was rarely addressed. Primary concerns of this dominant paradigm have long been water quality and public health, reliability of supply, sanitation through wastewater disposal and flood mitigation for flood risk through a dams and pipes approach (Head 2014). Current regulation and policy in the Australian urban water space often represents this dominant engineering approach (Head 2014). Water also has some distinctive economic features, see Box 2.1. These features have influenced the pricing of water and the property rights regimes that have developed for water. These features also influence the service delivery models that have developed for the urban water sector and the type of investments that are typically made by the sector. 3 These encompass the bulk harvesting, manufacture, storage, treatment, transmission, distribution and retail of water. Historically, in Australia water services involved just potable water. However, in recent times some water service providers have begun to provide certain customers with two classes of water; potable water for drinking and non- potable water for other uses. 4 These encompass the transmission, distribution, treatment, recycling and disposal of sewage and trade waste. 5 These encompass the transmission, distribution, treatment, recycling and disposal of stormwater. 6 Such as channels, drains and pipes.

19 CRC for Water Sensitive Cities 19 Box 2.1 Consequences of the economic conception of water Water has certain distinctive economic features which make it different from other commodities. These features have influenced the types of property rights regimes that have emerged for water and often make water governance arrangements challenging. Water is both a public and a private good water has aspects of a private good. These aspects enable it to be enjoyed by an individual, for example when drunk. Yet, when left in situ in the environment, water also has aspects of a public good. These aspects mean that it can be enjoyed simultaneously by many people, for example, a great number of people may enjoy recreational activities on a lake. This makes water hard to value because a public good is valued in different ways to a private good. Accordingly, valuations of water must incorporate the value placed on water left in the environment by many people. Water is mobile - water flows and can be reused. These mobile qualities make it hard to enforce property rights on return flows and have led to the development of collective rights in water. Water is bulky and expensive to transport - to deal with shortages there must either be rationing or stockpiling of the resource, for example in a dam. Water infrastructure is long lived, capital intensive and benefits from considerable economies of scale - this is particularly the case in relation to potable water. These qualities mean that the water industry is heavily influenced by fixed costs, has short run marginal costs, is well suited to being a natural monopoly and is also well suited to collective action and public provision. A consequence of water provision being best suited to collective action is that it is also subject to the problems that all attempts at collective action are subject to such as free riding (where those who benefit do not pay) and rent seeking (where an attempt is made to grab a bigger share of existing wealth without creating new wealth). In addition, these qualities mean that the water industry is subject to lumpiness in investment, which favours occasional large-scale supply augmentations. Price of water - water prices tend to reflect the physical cost of supply, not the scarcity of the resource. As a consequence, water users tend to pay for the costs of the infrastructure not the costs of the resource itself. Water, typically being a government owned resource, is given away for free or nearly for free. Essentialness of water - up to a certain low threshold water is essential for life. However, this quality says little about the value of water above this threshold. Source: Hanemann (2005). The conventional model has generally served cities extremely well (OECD 2015a). However, the conventional engineering approach has been heavily criticised for its limitations, which are particularly apparent in times of drought, and for its ineffectiveness in addressing increasingly complex water problems (Blomquist, Heikkila et al. 2004, Lach, Rayner et al. 2005, Weber and Khademian 2008, Head 2014).

20 20 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Table 2.1. Significant features and challenges affecting urban water across the three cities Exposure to water risks Urban features Institutional architecture Melbourne Prevailing water resource natural surface water. Location of resource - water is stored in a series of reservoirs located within and outside the Greater Melbourne area. The largest dam is the Thomson River Dam. Smaller dams, such as the Upper Yarra Dam and the Cardinia Reservoir, carry secondary supplies. Reliability of resource reliable except in periods of drought. Investment has been made in desalinated water to augment water supply in periods of low supply. Geographical features - Melbourne covers an area of approximately 8,694 km². The city itself stands in a region of alpine forests with the city spanning along the lower stretches of the Yarra River. Population 3.8 million. Urban characteristics affluent, sprawling and growing. Urban surroundings Melbourne is located at the top of Port Phillip Bay. Melbourne is surrounded by agricultural land, industrial land, metropolitan areas, state parks and protected areas. The Victorian Government is responsible for water planning and management with the support of various departments. Three water service retailers provide water and sewerage services. One bulk water authority provides bulk water, storage, treatment, catchment management, waterway health and drainage services. 31 local councils provide drainage services across the city. Brisbane Prevailing water resource natural surface water. Location of resource water for Brisbane is stored the Wivenhoe, Somerset and North Pine dams. Population 1.5 million. Urban characteristics affluent, sprawling and growing. The Queensland Government is responsible for water planning and management with the support of various departments. Reliability of resource relatively reliable except in periods of drought or flood. Significant investment has been made in desalinated and recycled water to augment water supply in periods of low supply. Geographical features - The city lies along the Urban surroundings Brisbane is located on the coast in the most populated region of Queensland. Brisbane s surroundings include industrial land use, agricultural land use, smaller cities, state parks and One water service retailer-distributor provides water supply and sewerage services. One bulk water service provider stores, treats and delivers water to the retail-

21 CRC for Water Sensitive Cities 21 Brisbane River on a low-lying flood-plain. Its eastern suburbs line the shores of Moreton Bay. The greater Brisbane region is on the coastal plain east of the Great Dividing Range. protected areas. distributor. Brisbane City Council provides drainage services across the city. Perth Prevailing water resource groundwater and desalinated water with some use of natural surface water. Location of resource two desalination plants are located on the Western Australian coastline with groundwater largely sourced from the Gnangara and Jandakot mounds. Reliability of resource desalinated water is very reliable. Most deep groundwater aquifers are reliable however many are over-extracted. Population 1.9 million. Urban characteristics affluent, sprawling and growing. Urban surroundings Perth is located on the coast in south west Western Australia, the most populated area of the state. Surrounding environment has agricultural land use, industrial land use, tourism and other smaller cities. The Western Australian Government is responsible for water planning and management with the support of various departments. One vertically integrated water service provider provides water, sewerage and drainage services. 30 local councils provide drainage services across the city. Geographical features - The central business district of Perth is bounded by the Swan River to the south and east. The city is mostly located on the sandy and relatively flat Swan Coastal Plain, between the Darling Scarp and the Indian Ocean. The metropolitan area covers 6,417.9 km. (Adapted from the typology developed for the OECD (2015a) using data from Dobbie, et al. (2014)).

22 22 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia 2.2. Understanding urban water management across the three cities The OECD (2015a) has developed a typology through which to understand the particular water challenges faced by particular cities and the capacity of individual cities to respond to these challenges. This typology considers three dimensions; exposure to water risks, 7 distinctive urban features and institutional architecture. Table 2.1 on the previous pages applies a simplified version of this typology to the three cities considered in this report. Brisbane, Melbourne and Perth are all affluent and geographically sprawling cities currently undergoing significant population growth. 8 Such population growth places stress on existing urban water supply systems. It also places existing urban water regulatory frameworks under pressure. In addition, Australia is the driest inhabited continent and has a highly variable pattern of rainfall. Such scarcity and variability inevitably means that security of water supply is a continuing concern. Australian communities became more aware of the finite nature of their water resources during the Millennium drought which affected the eastern seaboard states between 1997 and The Millennium drought highlighted the finite nature of water resources and broader issues of climate change and sustainability and resulted in significant public concern about water security (Ferguson, Brown et al. 2013). Rainfall patterns differ across the three cities with Brisbane experiencing the highest levels of precipitation (Dobbie, Brookes et al. 2014). As a consequence, flooding is a particular concern for Brisbane. Across all three cities there are a number of separate organisations which provide water supply, sewerage and drainage services. These urban water service delivery institutions are set out in Table 2.3 and are either local councils or publicly owned water corporations. Table 2.2. Institutions responsible for urban water service delivery across the three cities Melbourne Perth Brisbane Water supply services Bulk water: Melbourne Water Retail water: Yarra Valley Water (YVW), South East Water (SEW), City West Water (CWW) The Water Corporation Bulk water: Seqwater Retail water: Queensland Urban Utilities (QUU) Sewerage services Bulk sewerage: Melbourne Water The Water Corporation. QUU Retail sewerage: YVW, SEW, CWW Drainage services Melbourne Water and local councils The Water Corporation and local councils Brisbane City Council Melbourne, with three urban water retailers and a bulk water authority, has the most water entities involved in urban water and sewerage service provision. In contrast, Brisbane has 7 These water risks are defined as risks of floods, scarcity, pollution and ecosystem resilience. 8 Brisbane and Perth growth rates forecast a fifty per cent increase in population by 2030 and Melbourne expects a growth rate around 30% for the same period (PriceWaterhouseCoopers 2010).

23 CRC for Water Sensitive Cities 23 one bulk water supplier and one retailer for the whole of Brisbane and Perth has just one entity responsible for both bulk and retail supply. The water corporations in Melbourne and Perth are owned by the Victorian and Western Australian Governments respectively. In contrast, QUU in Brisbane is owned by the five local councils in whose areas it operates. Drainage and stormwater services tend to be provided by a combination of local councils and water corporations with each city having a different model Responses to urban water challenges In all three cities the current regulatory frameworks, supply options and institutional arrangements have also been shaped in response to the historical trajectory of each city as well as recent changes in rainfall and runoff. Often these changes can be understood as crisis responses to an urgent need to close the supply and demand gap. The Millennium drought tested the resilience of Australia s urban water systems and the Victorian and Queensland Governments reacted by making significant investments in desalination plants which offered a climate independent source of water. However, these investment decisions did not form part of a considered strategy for long term resilience. As a consequence, once the drought broke, neither of these plants has been used to any great extent. In Melbourne, other policy responses to the Millennium drought were predominantly focused on imposing restrictions on water use, while in South East Queensland (SEQ), the Queensland Government centralised its water networks. This led to costly institutional reform and, arguably, to a loss of institutional memory and capacity. Following the drought, Brisbane was severely affected by flooding and gaps in the city s flood mitigation infrastructure were discovered. 9 Investments during the Millennium drought have been criticised for failing to systematically consider all options, costs and effectiveness for ensuring water security under uncertain rainfall conditions (Productivity Commission 2011a). Indeed, the investment required to build desalination plants has significantly increased water prices in both Melbourne and Brisbane. As a result, the focus of urban water management in these two locations has now turned to enhancing efficiency savings due to consumer concern over increased prices from investments and reforms made during the drought. 10 While Perth was less affected by the Millennium drought, the south-west of Western Australia has been undergoing a long-dry since the 1970s, partly due to anthropogenic greenhouse gas emissions. Moreover, Perth s water shortage has been compounded by a tripling of water use over the past 25 years, predominantly due to population growth (Western Australian Planning Commission 2010) and an increase in water demand (Isler, Merson et al. 2010). 11 This trend is set to continue with forecasting indicating that Perth will enter a water deficit by 2020 (Government of Western Australia 2007). Whilst water supply in Perth has been provided traditionally from both surface water and groundwater sources the increasing scarcity of surface water has resulted in a greater focus on groundwater (Isler, Merson et al. 2010). Indeed, at one point groundwater provided almost three quarters of Perth s water supply (Government of Western Australia 2007). Depleting groundwater levels and the water crisis (Fane and Patterson 2009) resulted in heavy investment in two desalination plants and now these supply approximately 145 billion litres of water. This is almost half of Perth s water requirements. The continued drying of the region has the potential to be a significant limitation to the city s growth. Perth s water service institutional structures have been largely stable but the legislative system is undergoing current reform. 9 This led to a formal inquiry into the flood response being conducted. See Appendix B for a discussion of the Queensland Floods Commission of Inquiry. 10 An efficiency review of the water authorities was undertaken by the Office of Living Victoria in 2014 with an independent report recommending a number of efficiency savings for the water corporations in Melbourne. The Fairer Water Bills policy promised savings of $100 per customer per year over the next four years. 11 Perth has the highest per capita consumption of water in Australia.

24 24 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Another urban water challenge is the management of urban stormwater. Urban stormwater run-off increases with urban densification and the extension of the urban environment into the peri-urban fringe. Moreover, in recent years it has become apparent that urban stormwater runoff is a significant environmental pollutant and a contributor to the poor water quality of waterways and bays. This is challenging the conventional model of drainage provision The emergence of new directions for urban water Ensuring the provision of sanitation services and an adequate supply of water to urban users, at an acceptable quality and price, will continue to be the focus of urban water service provision. However, future supply options may be constrained by financial constraints, aging assets and less availability of traditional resources (OECD 2015). There is also an increasing expectation in Australia that the water industry should play an important role in water resource conservation, environmental protection and that it should make a contribution to the overall liveability of our cities (National Water Commission 2011, Johnstone, Adamowicz et al. 2012, Office of Living Victoria 2013a, Hodge, Rodrigues et al. 2015). Recently in Australia there has been a gradual emergence of a more collaborative approach to water governance and a more integrative approach to the sustainable management of all water resources in cities (Brown, Keath et al. 2009). This focus heralds a shift beyond traditional concerns of water supply, sanitation and drainage. Sustainable urban water management envisions an increasingly integrated mix of centralised and decentralised technologies, to augment water supply with treated wastewater or stormwater, as well as a focus on waterway protection and enhanced urban amenity (Dobbie and Brown 2013). This is leading to experimentation with new ideas in service delivery. For example, the use of recycled wastewater in dual reticulation systems and the capturing and treating of stormwater as a resource to water open spaces or to replenish aquifers. With increasing urban population and climate variability there have been calls for adaptive management and planning in the urban water sector (Tan, Bowmer et al. 2012) and solutions that are contextual and provisional (Head 2014). 12 A WSC requires urban water regulatory frameworks which are resilient to change, which recognise drought and flood as part of the natural hydrological cycle, and which are able to adapt to changing circumstances. Yet recent experiences indicate that water planning, management and investment in Australia is still often undertaken in the context of political impetus rather than as part of a longer term strategic rationale. As supply concerns remain a significant issue in Western Australia, it has been suggested that Perth provides an example of a city beginning to adopt adaptive, resilient and integrated water management (Jones and Brooke 2005, Kundzewicz, Mata et al. 2008, Isler, Merson et al. 2010). Perth s adaptive responses assume that climate change will continue to see declines in rainfall in the south-west of the State, rather than reacting once these eventuate. However, to date the response to such challenges has been largely focused upon developing climate independent water supplies, such as desalination plants (Water Corporation 2009, Dhakal 2013). A far broader set of responses is likely to be required in the future. 13 In addition, modern approaches to drainage service provision focus both on providing adequate drainage and on controlling for the environmental harms from urban stormwater run- off (Wong, Allen et al. 2013). Newer stormwater management practices involve capturing water closer to its source and finding uses for it that do not involve discharge to rivers and the bay. This in turn is leading to stormwater to be considered as an alternative water resource for exploitation. The amount of stormwater falling on the three cities is extensive, see Table Resilience approaches do not assume that a return to a business- as- usual after a major disturbance is possible or desirable. Rather the focus of adaptive management is to respond effectively to changing conditions (Head 2014). 13 Two desalination plants now provide almost half of the fresh drinking water demand in Perth each year (Dhakal 2013). However, new solutions will be required as meeting the projected water demand by 2060 would require an additional ten desalination plants. The Water Corporation has acknowledged that the desalination approach is unfeasible due to the operational costs, energy use, environmental impacts and siting issues (Water Corporation 2009, Syme and Nancarrow 2011).

25 CRC for Water Sensitive Cities 25 Table 2.3. Annual stormwater run-off falling on the three cities Melbourne Perth Brisbane Estimated annual stormwater run-off in metropolitan area GL GL 380 GL Sources: Prime Minister s Science Engineering and Innovation Council (PMSEIC) (2007), GHD Pty Ltd (2008), Stormwater Victoria (2015). To put these amounts of run-off in context, the current volume of drinking water consumed in the Melbourne metropolitan area is 374GL, less than recent estimations of stormwater run-off (Stormwater Victoria 2015). Urban stormwater runoff does therefore appear to represent a significant, and currently underutilised, water resource.

26 26 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Key observations about the Australian urban water model The conventional model for urban water service provision in Australia involves water being collected, distributed and treated in large infrastructures which are centrally organised at the city level. Water is largely supplied to one potable standard and used once. Urban drainage services and sewerage services are primarily focused on ensuring that unwanted water is removed from the urban environment. Water supply and sewerage services are delivered by publicly owned water corporations within a corporatised model focused on economic efficiency. Drainage services are also delivered by local councils. In all three cities the current regulatory frameworks, supply options and institutional arrangements have been shaped in response to this conventional model. In all three cities the current regulatory frameworks, supply options and institutional arrangements have also been shaped in response to challenges posed by water scarcity. Such responses have not always been well considered. Challenges arising from drought, climate change, population growth, increased urban densification and changing societal expectations continue to challenge the conventional urban water model and leading to experimentation with new ideas and new directions.

27 CRC for Water Sensitive Cities 27 Section 3 - A comparative review of water resource regulation 3.1. About Australian water resource regulation systems Fundamentally, water resource regulation seeks to define who is entitled to use water and for what purposes (Gardner, Bartlett et al. 2009). Australian water resource regulation systems are the regulatory frameworks within which complex decisions about the management and allocation of limited water resources are made, and any entitlements to such water resources are delineated and protected. 14 Across Australia, this management and allocation of water resources is guided by statutory water planning systems. In allocating water entitlements to a share in a particular water resource, legal questions as to ownership and control arise. However, water has never been a good fit for concepts of absolute ownership (Gardner, Bartlett et al. 2009) and has a distinctive legal status (OECD 2015b). The starting point for all questions concerning property rights in water in Australia is that the right to the use, flow and control of water is usually vested in the Crown, represented by the State Government. 15 In addition, State Governments control access to water resources and prohibit the taking of these resources without government authority. Allocations of water do not convey possession of the water only access to take and use the water, in the form of an access right. These access rights may be a water access entitlement, an approval or licence to construct and operate works for the purpose of taking water or a permit or licence to use the water. Some types of statutory water access entitlements are transferable and may be traded, in a defined geographical area, under legislative provisions. However, many alternative sources of water, such as stormwater and sewage, are not encompassed by current statutory water access entitlement regimes (Frontier Economics 2008). As earlier assumptions about the continued abundance of water resources in Australia have become increasingly unsustainable, regulatory frameworks have evolved to enable limits to be set on the consumptive use of water (Gardner, Bartlett et al. 2009). This has led to the development of new legal concepts, such as an environmentally sustainable level of consumption and the allocation of water for environmental benefits. For a further discussion of this see Section Institutional arrangements for urban water management across the three cities Table 3.1 sets out the entity responsible for the various aspects of urban water management across the three cities. Perth has fewer different entities involved in urban water management compared to Brisbane and Melbourne. Notwithstanding this, the governance arrangements across each city are extremely complex and co-ordination across such a large number of bodies is likely to be challenging. However, limited empirical information was available on how these institutions actually co-ordinate in each city. There was also limited evidence that a lack of co-ordination is actually acting as a significant impediment to water sensitive service delivery. 14 Where clear rights to a resource exist there may be economic gains available to a society from the trading of these rights in a market. Governments may also have a role to play in regulating such markets. As urban water markets are not prevalent in Australia this regulatory role is not considered in depth in this report. 15 How this Crown vesting occurs differs across the various States. For example, Western Australia and Victoria only vest water in waterways, wetlands and underground water not stormwater/overland water flows in the Crown. While South Australia vests no water resource in the Crown. A good discussion of these differences in is provided in Gardner, Bartlett et al. (2009).

28 28 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Table 3.1. Entities responsible for urban water management across the three cities Melbourne Perth Brisbane Water resource planning and allocations Department of Environment, Land, Water and Planning (DELWP) The Department of Water (DoW) and Minister for Water The Department of Natural Resources and Mines (DNRM) Catchment management Melbourne Water Water Corporation and the non-statutory Perth Regional Natural Resource Management Group (NRMG) DNRM, Department of Environment and Heritage Protection (DEHP), Seqwater and SEQ Catchments Waterways management Melbourne Water Swan River Trust, Water Corporation and the Perth Regional NRMG DNRM, Seqwater, Healthy Waterways Partnerships and Brisbane City Council Floodplain management and drainage services planning Melbourne Water and local councils The Water Corporation and local councils Seqwater and Brisbane City Council Water supply planning YVW, CWW, SEW, Melbourne Water and DELWP DoW and the Water Corporation Seqwater, QUU and Department of Energy and Water Supply (DEWS) Water and sewerage services planning YVW, CWW, SEW, Melbourne Water and DELWP DoW and the Water Corporation QUU and Seqwater In each of the three cities the publicly owned water corporations that deliver services are also involved in water planning. In theory, Perth has a clearer delineation between the roles and responsibilities of the DoW and the Water Corporation than the other two cities have between their service providers and regulators. For example, in Melbourne the sector also suffers from a degree of blurring between regulatory and service delivery roles and responsibilities with Melbourne Water having responsibilities for both service delivery and resource management (McCallum 2014). However, in practice this blurring also occurs in Western Australia as the DoW has delegated a number of its water planning functions to the Water Corporation. Urban water institutions in Brisbane, Melbourne and Perth were often observed to have overlapping responsibilities. Co-ordination across bodies with overlapping responsibilities is likely to be particularly challenging. For example, in Melbourne the Productivity Commission (2011a) has noted that there is currently a lack of clarity and overlap of responsibilities at an institutional level between Melbourne Water and the local councils in relation to drainage service provision. Similar issues arise in Perth with responsibility shared between local councils, the Department of Main Roads and the Water Corporation. However, despite the differences across the jurisdictions, there is insufficient information to determine whether any particular institutional arrangement has resulted in better urban water management and enhanced the uptake of water sensitive service provision.

29 CRC for Water Sensitive Cities Rights to use alternative water resources and their allocation Property rights in several alternative sources of water, in particular recycled wastewater and stormwater, remain undeveloped and there are recognised gaps in the definition and regulation of property rights in such sources (Frontier Economics 2008, Gardner, Bartlett et al. 2009, De Sousa 2013a, De Sousa 2014a, De Sousa 2014b). It has been suggested that this will be particularly important in times of scarcity, when there is potential for the rationing of water resources and competing rights may need to be asserted (Young 2014). Box 3.1. Stormwater and the urban water catchment in South Australia As the driest state in Australia, stormwater capture and re-use has become a key water security issue in South Australia. A recent plan prepared by the South Australian Government, Water for Good, aims to increase both wastewater recycling and stormwater capture and reuse techniques and schemes and sets targets for stormwater re-use in urban South Australia. These are supported by a Stormwater Strategy, developed by the Department for Water, which also supports the development of access rights to stormwater, for reuse scheme owners, to provide certainty and increase incentives for investment. The City of Salisbury has been at the forefront of stormwater harvesting and reuse. Salisbury Water, predominantly wetland cleansed stormwater, is distributed to parks, reserves, schools, industry and some new residential properties in the local council area. The harvested stormwater is stored in aquifers. To facilitate stormwater harvesting and reuse South Australia has begun to establish a regulatory regime for allocating and licensing the take and use of stormwater resources. A statutory regime exists to regulate the allocation of stormwater in a catchment and to licence the take and use of such resources, there is a non-statutory understanding about the volumes of stormwater that can be injected into and extracted from an aquifer and extraction requires a statutory licence (Pitman 2013). Existing statutory water rights and allocation frameworks for surface water, such water in waterways and wetlands, do not extend to stormwater/overland flows in either Victoria or Western Australia. The Water Bill 2014 proposed a new regime for Victoria which would have clarified the property rights of local councils to stormwater in their stormwater assets and would have provided new allocation mechanisms for such stormwater. This Bill has not been passed into law and implemented and these issues currently remain unresolved in Victoria. Box 3.2 explores how these issues are being addressed in the context of stormwater capture and re-use in Western Australia.

30 30 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Box 3.2. A novel property right for MAR? The issues of property rights in, and access to, alternative sources of water have been significant ones for Western Australia in the context of Managed Aquifer Recharge (MAR). MAR is the process of injecting or infiltrating water to supplement the natural recharge of aquifers and it is being strongly considered as a solution to the over-allocation of groundwater resources in Western Australia. MAR is being undertaken with recycled wastewater and stormwater, which has the added benefit of utilising water that may have otherwise been discharged into, and have potentially polluted, urban waterways and adjacent marine water (Davies, Ives et al. 2011). The DoW has released an MAR policy to aid the approval of socially and environmentally acceptable MAR proposals under the Rights in Water and Irrigation Act 1914 (WA) (RiWI Act). This policy outlines the licensing process for MAR schemes, the role of the DoW and refers to the Australian Guidelines for Water Recycling: Managing Health and Environmental Risks (Phase 2) managed aquifer recharge (July 2009). MAR raises several property rights issues. For example, there is no clear Australian judicial determination about the definition, and characterisation, of rights to access groundwater and this is acting as a significant barrier to the uptake of MAR projects by private companies (Vincent and Gardner 2014). In addition, when water is recharged into aquifers for MAR, the property rights held in that water by the recharger are uncertain. Under the MAR policy, water recharged into an aquifer becomes underground water and is, therefore, vested in the Crown under the RiWI Act. A proponent would therefore need a licence to recover the recharged water, has little to no security over this recharged water and has limited certainty about whether such a licence would be granted, and if so, for what volume. There are also limited powers for the protection of the quality of groundwater in a MAR scheme. Accordingly, there are calls to give MAR proponents greater security over recharged water in an MAR scheme (Ward and Dillon 2012). Vincent and Gardner (2014) have suggested some potential solutions to these dilemmas. They propose that continuing property rights should be recognised in the alternative water resources recharged into an aquifer, assuming that the water is identifiable after recharge through comprehensive hydrogeological study. They also suggest that in the absence of a specific regulatory framework for MAR, a MAR proponent may be able to argue that it is beyond the authority of the Crown to licence the take and use of recharged water, given the potential to claim such continuing property rights. Finally, they suggest that the proponent would have an action in nuisance against any party that affected the quality of the recharged water in an aquifer. Difficulties also arise in defining and allocating property rights in groundwater. These difficulties have been identified in Western Australia in the context of MAR. Box 3.2 discusses MAR developments in Western Australia and some of the legal issues MAR is encountering. The current Western Australian regulatory system is often contradictory in relation to MAR and contains significant gaps. For example, while legislation does regulate, by licensing, the extraction of water from an aquifer it does not require a licence for the injection of water into an aquifer (Bancroft and Gardner 2015). Nor does current Western Australian legislation address the legal control of stormwater (Bancroft and Gardner 2015). As well as securing the right to use an alternative water resource a water service provider would also need to secure access to the infrastructure, such as pipes, through which the captured water flows. In the absence of a specific statutory regimes designed to regulate such allocations, and enable access, this is largely regulated on an ad hoc basis through the negotiation of contracts between service providers and those able to provide access to the resource (Bancroft and Gardner 2015). By way of example, in Victoria the Water Act 1989 (Vic) identifies who has rights to the use of water in waterways. Stormwater harvesting proponents would be required to arrange access, by contract, to these waterways if they intended to harvest stormwater from them. Similarly, in Brisbane recycled wastewater is

31 CRC for Water Sensitive Cities 31 recognised as a water resource but access to the resource is not regulated. Therefore, recycled water providers are required to contract privately to obtain this. Issues concerning access to third party infrastructure are further considered further in Part 4 of this report The city as catchment While urban environments have not traditionally been considered as water catchments, their large impervious surface run-off areas could facilitate the harvesting of large quantities of stormwater for urban water supply purposes. To date, stormwater has been only harvested by small scale systems, often using energy intense technology. However, research is being undertaken by the CRC to develop low-energy and low-carbon footprint technological solutions to deliver large volumes of harvested stormwater. 16 One of the challenges to increasing stormwater capture and harvesting is that current urban water regulatory systems do not conceive of the urban landscape as a catchment. Existing legal frameworks and regimes for urban water management are still grounded in the conventional model. As a consequence there are limited regulatory mechanisms for the licensing of stormwater abstraction (see also Section 3.3) and for ensuring the quality control of stormwater. 16 See the CRCWSC projects: Project B1.1: Cities as Water Supply Catchments Urban Rainfall in a Changing Climate; Project B2.1: Cities as Water Supply Catchments: Stream Ecology; Project B3.1: Cities as Water Supply Catchments Green Cities and Microclimate; Project C1.1: Cities as Water Supply Catchments Sustainable Technologies; Project C1.2: Cities as Water Supply Catchments Risk and Health. Understanding Stormwater Quality Hazards; Project D1.1: Cities as Water Supply Catchments Integration and Demonstration through Urban Design.

32 32 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia Key observations about water resource regulation Institutional arrangements for urban water management, planning and service delivery differ across the three cities and in each city the governance arrangements are extremely complex. There is limited evidence that any one model acts as a significant impediment to, or enabler of, water sensitive service delivery. In each city there is potentially a lack of institutional co-ordination although there is limited evidence about how such lack of coordination may be acting to impede water sensitive service delivery. In all three cities the right to use and control certain sources of water is vested in the Crown. However, property rights regimes across all three cities do not generally recognise rights in alternative water sources, such as recycled wastewater and stormwater. This means that there are no clear statutory mechanisms for asserting such rights or for allocating these resources. The concept of the urban area as a water catchment remains undeveloped across all three cities. This means, for example, that allocation mechanisms for stormwater resources may not be able to adequately protect the environment from the problems which could result from over-allocation.

33 CRC for Water Sensitive Cities 33 Section 4 A comparative review of service delivery and price regulation 4.1. About Australian service delivery and price regulatory systems Urban water services are considered to be essential services whose provision to the public is a matter of utmost importance. For this reason, it is commonly accepted in Australia that governments have a role to play in controlling who may supply urban water services and the terms of this supply. This is achieved by a complex interplay of the rules. Some of these establish publicly owned water service providers. Others promote, impede and control competition in markets in water service provision. There are still more rules that regulate the quality of the service delivered to customers by both public and private water service providers. In addition, the network elements of urban water service systems have features of a natural monopoly, which means that they can be provided most efficiently by one entity. Traditionally in Australia a publicly owned monopoly service provider has been given responsibility for water service provision throughout a particular geographic area. In economic theory, the absence of a competitive market provides additional justification for government regulatory intervention to mimic the consumer outcomes that a competitive market would provide. 17 This is achieved by controlling the price customers pay for water services. This control may be achieved by the application of political pressures, or through a system of economic regulation, whereby pricing oversight and control is undertaken by an independent regulator. A result of a long term trend towards commercialisation in the Australian urban water sector has been a focus upon the independent economic regulation of water for pricing and customer service standards (Langford and Piccinin 2004). It is also common for monopoly service providers to be the owners of monopoly assets, for example, distribution and transmission pipelines. Monopoly network ownership provides a further justification for government regulatory intervention, this time to prevent the asset owner from denying access to the asset, or water resources held within it, to other potential service providers who may wish to compete to provide services. Rules enabling third parties to access such infrastructure, and the price that access must be granted at, tend to be extremely technical and are known as third party access regulation. Section 4.2 examines which entities participate in urban service provision across the three cities, the barriers new market entrants may face and the ability of third party service providers to access essential network infrastructure owned by other service providers. The remainder of Section 4 considers how the quality and price of urban water services are regulated and controls which are brought to bear on investment decisions in the urban water sector and whether water sensitive service delivery could be enhanced by changing or strengthening any of these arrangements Competition in service delivery The institutional responsibility for urban water service delivery across the three cities is shown in Table 2.2 above. While each city has a somewhat different demarcation between which entities deliver each service, a common feature is that the urban water service providers, the water corporations, are geographical monopolies which have a corporate structure but which are publically owned. Currently, there are no private water service providers operating in any of the three cities. Drainage services are most commonly provided by local councils, although in Melbourne there is also a significant role played by Melbourne Water. 17 These outcomes are affordable and universal access to acceptable levels of the service, at a price that enables the monopoly provider to recover its costs and earn a profit, but not to earn a monopoly profit.

34 34 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia As noted previously there is not enough empirical evidence on which to form an opinion about whether any particular institutional arrangement is better than any other in delivering water service delivery innovation. However, it is worth noting that publicly owned water service providers in both Perth and Melbourne have been responsible for the implementation of innovative water service delivery projects. For example, the Water Corporation in Perth, with the support of the DoW, has undertaken MAR trials. While in Melbourne, the water retailer, YVW, has invested in innovative stormwater technology with the Kalkallo stormwater harvesting and reuse project. 18 This certainly suggests that public service providers can, with the necessary resources and motivations, be innovators. This has also been observed at the international level (Lobina, Kishimoto et al. 2014). Increased competition in the water sector has been a focus of national reform efforts since the mid-1990s. 19 However, so far, policy responses have largely focused on increasing the independent economic regulation of water. Despite widespread support for the proposition (Productivity Commission 2011a, Groshinski and Clark 2015) there remains significant uncertainty about how increased private sector involvement in the water industry should be managed (Watson, Mitchell et al. 2013). Water sensitive service delivery offers the potential for service delivery solutions that are smaller and more localised than existing options. Such decentralised solutions may lend themselves to provision by new service providers. These could be public entities, such as local councils, or private entities, such as land developers or micro-utilities. 20 There are significant impediments in existing regulatory frameworks and institutional arrangements to achieving diversity in service provision (Groshinski and Clark 2015). Most prominently, in Victoria, there is a direct legislative barrier in the Victorian Constitution Act 1975 (Vic) preventing private parties from entering into the water services market. 21 However, since this provision was inserted in the Victorian Constitution all water services in have been supplied by public water corporations. Therefore, the precise legal nature of this regulatory barrier to privatised water service provision is untested. 22 In addition, to the direct regulatory barrier there are also significant regulatory gaps in Victoria in relation to private water service provision. These gaps arises because there is no regulatory mechanism by which service providers who are not one of a limited number of listed water corporations could be regulated, for service quality or price, should they wish to supply urban water services to the public. Accordingly, to enable urban water service supply by other parties in Victoria would require reform to the regulatory framework. Further reform would also be necessary to ensure the requisite level of governance for service quality by such providers. In contrast, neither Western Australia nor Queensland has a direct legislative barrier to market entry by new providers. Indeed, both jurisdictions operate licensing regimes for service providers which could accommodate private as well as public service providers. New South Wales has been at the forefront of Australian jurisdictions using licensing regimes to enable and encourage private sector entry in to water services market. The Water Industry Competition Act 2006 (NSW) (WICA) facilitates this private sector entry. For more information about WICA see Box 4.1. However, even this regime has only resulted in extremely modest 18 There has also been an important role played by publicly owned development bodies in urban water service innovation in Australia. For example, VicUrban with the Aurora development in Melbourne and Economic Development Queensland (EDQ) with Fitzgibbon Chase (see Box 5.1). 19 The 1994 Council of Australian Government (CoAG) strategic water reform framework incorporated the National Competition Policy agreements which had identified concerns regarding performance and efficiency in the government- owned utility industries. 20 An example of a micro- utility would be the model proposed by Flow Systems, see Box 4.1 for more details. 21 Section 97 of the Constitution Act 1975 (Vic) requires that where a public authority has responsibility for ensuring the delivery of a water that it, or another public authority, must continue to have that responsibility. Water services are defined as water supply, sewerage, irrigation, water collection and storage, or sewage treatment services. 22 This restriction does not, for example, prevent Aquasure, a privately owned water consortium, from providing desalinated water to the Melbourne market via a public private partnership with the Victorian Government.

35 CRC for Water Sensitive Cities 35 private sector participation in the water services sector in New South Wales (Groshinski and Clark 2015). Box 4.1. WICA and development of a private water industry in New South Wales In 2006, the New South Wales enacted specific legislation, WICA, which sought to increase private sector investment and innovation in the water sector while maintaining protections for consumers, the environment and public health. WICA established a licensing regime for private sector entrants to the market. Those wishing to construct, maintain or operate any water industry infrastructure are obliged to obtain a network operator s licence. Those wishing to supply water, either potable or non-potable, or to provide sewerage services by means of any water industry infrastructure, are required to obtain a retail supplier s licence. One entity can hold both types of licence. This licensing regime is overseen by the state s economic regulator, the Independent Pricing and Regulatory Tribunal (IPART). WICA also established an access regime under which an applicant might seek access to existing water industry infrastructure. IPART has been established as the arbitrator of disputes over access to infrastructure services. A review of the WICA licensing scheme has recently been undertaken and as a consequence of this review the Water Industry Competition Amendment (Review) Act 2014 (NSW) refined the licensing scheme. These refinements include removing the requirement for entities regulated by WICA to obtain water from sources other than from a public water utility. There are also new measures to manage the degree of competition with incumbent utilities. The review also resulted in the development of a scheme of implied contracts, on standard terms and conditions, between WICA regulated entities and their customers. It also provided powers to public utilities, to acquire land and infrastructure and, where necessary on the failure of a licensee, ensure continuity of essential services. Flow Systems is an example of a water supply entity that has been licenced by IPART under WICA. Flow Systems aims to design, build, operate and manage a local and sustainable water services, often in conjunction with energy services, within a development community or precinct. Flow Systems intends to own the local water network infrastructure and to bundle water and energy supply options to reduce costs. More information on Flow Systems can be found at While there appears to be opportunity for third party entry into the water services market in South East Queensland there are strong institutional impediments to competition or contestability and the Queensland Competition Authority (QCA) has expressed some concern about the potential for private investors applications to be stymied by local councils and the incumbent water retailer in the planning application stage (Queensland Competition Authority 2014a). 23 Similarly, in Western Australia the dominant role played by the Water Corporation in service delivery seems to have suppressed the role played by private providers in the market (Bancroft and Gardner 2015). Indeed in all three cities, there are significant institutional barriers to market entry by new providers due to the incumbent position occupied by large, publicly-owned monopoly providers in each city. Private water service providers may also require access to the network infrastructure of the incumbent water utilities. For example, sewer mining may involve tapping into wastewater 23 Local councils have powers regarding development approvals under their local planning schemes and QUU has powers regarding development approvals, as a distributor- retailer, and a concurrence agency under the Sustainable Planning Act 2009 (Qld).

36 36 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia flowing through the utility s sewerage pipeline while stormwater harvesting may involve accessing stormwater that is flowing through a local council drain. As we have seen in Section 3.3, access to alternative resources may be successfully agreed between an infrastructure owner and a service provider in the absence of a specific regulatory framework. Local governments are often responsible for stormwater and drainage management across urban environments and can determine infrastructure access arrangements for innovative stormwater projects. Yet, such negotiations may be difficult for various reasons and increase transaction costs. The lack of a specific statutory access regime, or policy, which could enable a third party to apply to access infrastructure controlled by the Water Corporation, has been identified as a potential impediment to alternative water source projects in Western Australia involving wastewater (Vincent and Gardner 2014). None of the three jurisdictions considered has a formal third party access regime developed for the water sector that would provide agreed principles for the negotiation and grant of such access. 24 In contrast, New South Wales has developed a specific and tailored regime, as part of the WICA. See Box 4.1 for more details Regulating to ensure service quality to consumers All three jurisdictions examined have in place regulatory frameworks aimed at securing service quality. These tend to involve legislated minimum standards and the development of more detailed guidelines by water service providers themselves. Independent economic regulators often have a role to play in overseeing these frameworks and commonly ombudsmen resolve consumer disputes. For example, in Victoria, the Essential Services Commission (ESC) regulates compliance by the water corporations with a statutory Customer Service Code. 25 This in turn is implemented by Customer Charters and Hardship Policies developed by the water corporations themselves. Further equity concerns around the affordability of urban water services are addressed through economic regulatory tools such as the application of concessions and direct government grants to disadvantaged customers. Consumer disputes can be taken to the Energy and Water Ombudsman Victoria (EWOV). Similarly, QUU prepares its own customer charter, 26 regulatory oversight is provided by the QCA and disputes may be resolved by the Energy and Water Ombudsman (EWOQ). While in Western Australia, customer service standards have been recently introduced by the Water Services Act 2012 (WA) and an Energy and Water Ombudsman is now able to provide a dispute resolution service for issues between water utilities and water customers, or those affected by a water service. However, it is contended that current regulatory arrangements are not sufficiently robust to support more extensive private sector involvement in the urban water sector (Frontier Economics 2014). A private water service provider in Queensland would be subject to the same requirements concerning service quality and pricing regulation as the current public water service providers. 27 However, these protections would not be available to the customers of private water providers in Victoria or Western Australia. This is a significant regulatory gap. As noted in Box 4.1, recent changes to the WICA in New South Wales have resulted in greater consumer protections being introduced, through the use of deemed contracts. 28 Private service providers in New South Wales are now in the same position as public utilities and subject to the same customer service requirements. This provides a possible model other jurisdictions may wish to adopt. 24 Although Victoria did attempt to develop a specific regime relating to access for stormwater held in local government drains in the Water Bill 2014, this bill has not been enacted. 25 Although certain recycled water contracts may be exempted from this code. 26 This outlines customers rights and responsibilities, information about the services provided, information about the utility s Hardship Policy and processes for complaints and disputes. 27 Water Supply (Safety and Reliability) Act 2008 (Qld) s Owners of land will be deemed to have entered into contracts with licensed operators and licensed retailers to provide services to their land. Standard charges under deemed contracts will need to be published on the licensee s website.

37 CRC for Water Sensitive Cities How investment in urban water is regulated Supply management across Brisbane, Melbourne and Perth has been, and is currently, largely undertaken by investing in large infrastructure solutions, such as desalination plants. The engineering technical paradigm still pervades urban water management and it has been suggested this may be hindering the uptake of alternative options (Head 2014). Brisbane, Queensland Melbourne, Victoria Perth, Western Australia Investment in large water infrastructure projects is undertaken by the Queensland Government and Seqwater Investment in water infrastructure is undertaken by the water corporaions and the Victorian Government The Water Corporaion has the right to undertake any works or faciliies required for the purpose of supplying and treaing water. For large investments, the consent of the Minister for Water is required. Figure 4.1 Entities responsible for water infrastructure investment decisions in each city Figure 4.1 identifies which entities are responsible for making investment decisions about water infrastructure across the three cities and it can be seen that there is a significant amount of political control exerted on such investment decisions. 29 Investments in water infrastructure were also significantly influenced by the availability of large federal government grants during the Millennium drought. Some of these investments were in large scale infrastructure such as desalination plants (Productivity Commission 2011a). 30 Others were in more water sensitive service solutions such as stormwater and rainwater recycling schemes (Productivity Commission 2011a, Economic Development Queensland 2014a, Economic Development Queensland 2014b, McCallum 2015) Models of price regulation across the three cities As Figure 4.2 on the next page illustrates, the institutional responsibility for pricing urban water services differs significantly between the three cities. Brisbane has adopted a light handed regulatory response with water service prices set by the water corporations themselves with price monitoring undertaken by the QCA. In contrast, Melbourne has a model whereby an independent economic regulator, the ESC, must approve the prices set by the water corporations. 32 Perth is different again and the Water Corporation s prices are set by 29 CRCWSC Project A3.1: Better governance for complex decision making, is conducting research into what guides investment decision making in water utilities in Australia. 30 For example, the southern seawater desalination plant in Western Australia received $18 million from the Australian Government from the National Urban Water and Desalination Plan. 31 For example, the Fitzgibbon Chase development received over $7 million from the Australian Government s National Urban Water and Desalination Plan, Stormwater Harvesting and Reuse Projects. This was supplemented by additional grant funding from the Japanese Government. The Kalkallo Project received approximately 50 per cent of its funding from federal grants under this scheme. 32 The ESC is currently looking at how changes could be made to the model of economic regulation used in Victoria, see Essential Services Commission (2015).

38 38 Becoming a Water Sensitive City: A Comparative Review of Regulation in Australia the Minister for Water, acting with recommendations from the Economic Regulation Authority (ERA) and the Water Corporation. Therefore, three contrasting models for the formal control of water pricing exist across the three cities; an independent expert model in Victoria, a ministerial control model in Western Australia and a water utility model in Queensland. In addition to these formal economic regulatory mechanisms the water corporations in both Brisbane and Melbourne have also been subject to extensive parallel political interventions, from the Queensland and Victorian Governments, aimed at securing price savings and instigating pricing reform. These interventions used a variety of regulatory tools to apply pressure on the water corporations to change their retail prices. In Melbourne, the Victorian Government used its powers as shareholder of the water corporations to introduce consumer price savings under the Fairer Water Bills Initiative. While in Brisbane, the Queensland Government introduced legislation which capped water prices and required local councils to develop price mitigation plans. 33 As Groshinski and Clark (2015) observe while each State has an independent economic regulator, they may not in reality have truly independent economic regulation. Brisbane, Queensland Melbourne, Victoria Perth, Western Australia Retail water prices in SEQ are set by the water uiliies Water corporaions prepare Water Plans outlining proposed water and wastewater prices and submit to the ESC. Water Plans include minimum standards with detail as to how these outcomes will be met Minister for Water is responsible for sekng the prices of the Water Corporaion - Water Agencies (Powers) Act 1984 (WA) Bulk water prices are set by the Minister for Energy and Water Supply under the Water Act 2000 (Qld) s 360W ESC assesses the proposed prices in accordance with the principles in the Water Industry Regulatory Order (WIRO). There are also requirements for consultaion with government departments, regulators and customers The Minister may consider the recommendaions of the ERA and the Water Corporaion in making its decision The QCA, as the economic regulator of water and wastewater services, invesigates and reports on retail water pricing If the proposal is in line with the WIRO, and any guidelines produced by the ESC, it is then approved by the ESC. If not approved, the draj decision may specify further acions or requirements Figure 4.2. Models of price regulation across the three cities It has been observed that independent economic regulation of the urban water in Australia is complex and that regulators are often given unclear, or conflicting, remits and asked secure pricing that achieves conflicting objectives (Frontier Economics 2014). As a consequence some suggest that the regulatory objectives for the economic regulation of water be clarified, with greater guidance provided to regulators on trade-offs (Frontier Economics 2014). A further problem with independent economic regulation is that it can be extremely costly to administer and its benefits may not be great enough to justify these costs (Productivity Commission 2011a). Although the cost effectiveness of the model regulation does not seem to correlate closely with the level of independence of the model as the ESC in Victoria has been determined to be much less resource intensive than its lighter touch counterparts in Western Australia and Queensland (Deloitte 2014a). 33 Fairer Water Prices for SEQ Amendment Act 2011 (Qld).